Address to the CEDA Higher Education Review, Adelaide

Simon Birmingham:     It’s wonderful to be with you all today. Thank you for braving my fan club outside to get in; I’m pleased you all made it in safely and it’s a wonderful opportunity, for the second year in a row for me, to join this CEDA event and to have an opportunity to speak, particularly about higher education today.

I want to acknowledge a few people in the audience: former Premier Dean Brown; former Federal Treasurer, although in this setting perhaps more rightly acknowledged as former Federal Higher Education Minister John Dawkins; to the Vice Chancellors, who will be joining me on stage after lunch today: David Lloyd, Colin Stirling, and Mike Brooks; the Chancellor, it’s nice, Jim, that you’ve been able to come- Jim McDowell, you’ve been able to come and make sure that David sticks to the script or that David, I think usually he has to make sure that you stick to the script, Jim, is usually USA requirement.

It’s pleasing that CEDA takes such a strong interest in higher education in particular, playing a key role in the policy debate in this landscape, as it does across all areas of our economy because, of course, CEDA recognises the significance of higher education to Australia’s economic future, as it does as an organisation that for over 15 years has been doing much of the smart thinking and rigorous research that is driving sophisticated and pointed discussions around the issues that Australia faces.

Recently, when discussing one of the other significant policy issues in my portfolio, schools reform, that we’ve been tackling lately, the Prime Minister said, quite accurately, that the most valuable resource we have in our nation is not under the ground, it’s walking around on top of it. That’s of course why, in the Education portfolio, we’ve been so focused on policy improvements in early childhood education and care, in schools, education, funding, resourcing, and quality improvements, and in vocational education, all of which to ensure that all Australians have the opportunities they require to succeed in the future. And, indeed, the opportunities that our economy needs them to have, and the skills our economy requires them to have, to succeed and keep growing in the future. 

Across all aspects of the portfolio, we’ve sought to bring real focus on what’s fair, what’s affordable, and what can help to enhance equality of long term outcomes. And that brings us to the focus of today’s discussion in particular: higher education.

Australian universities are of high quality and they are respected worldwide. Our rankings in various international fora demonstrate this. The $21.8 billion worth of economic activity derived by the hundreds of thousands of international students who choose to come and study in Australia are testament to our global success. But success, and particularly expansion of higher education, has come at some significant financial cost in recent years. The decision in 2009 to open up the supply of tax payer funded places at universities to a demand driven system for those bachelor places has expanded access to universities like never before, and that, of course, is a good thing.

But, such expanded access, with record numbers of students participating, also comes with record cost. And when the decision was taken at the time to open up the demand driven system, like so many of the well-intentioned policies of that era, there was little thought as to how it would actually be paid for, particularly as the costs grew quite rapidly. Now, I’ve never taken for granted, and I doubt anybody in this room who thinks long and hard about education, and of course you’re here today because of your commitment to education, I’ve never taken for granted the opportunities that education opens up, and in testing and assessing what we should do and where we should go in response to some of these cost pressures, we thoroughly examined all of the different options, including proposals by some in the university sector for a re-capping of places, or for a capping of funding. 

But we decided that it was important to let the market dynamics that come with having a demand driven system work. In fact, we decided that in places we should enhance it and expand it by enabling universities greater freedom about how it is they would operate, whom they would enrol, what the areas in which they enrol those students, what the disciplines of study would be into the future. And they’re important changes because they should ensure that our universities remain dynamic and responsive to economic need and to the creation of student opportunity. 

But in enhancing it, we of course also owe it to the generations of current and future students, whom we’re creating opportunities for, to also have a clear picture and vision of how it is it will be paid for, funded, and sustained well into the future. Tax payer funding for Commonwealth supported, for federally governed, for Federal tax payer supported places in higher education has increased by some 71 point- 71 per cent over the past eight years. That’s twice the rate of economic growth across Australia. It’s significantly higher in terms of the growth in finance than we’ve seen in terms of the growth of revenue that’s available to Government to fund its services. And it’s come, of course, as I said, driven in large part by that expansion, that worthy expansion, in participation.

But we cannot deny or ignore the significant increase in costs that it has derided. Tax payer funded student loans, the mechanism that John Dawkins championed and delivered and introduced to ensure that we could afford expansion at that stage, in the 1980s, of our higher education system, tax payer funded student loans that ensure anybody can access university without paying a dollar upfront, now stand on the Government’s loan books at around $50 billion and the estimations are that, under the current settings for the repayment of those loans, around one quarter of them will never be repaid. 

So the reality of enormous growth in outlays in recent years, at enormous risk to the loan book around student debt, is that if we dodge the hard decisions now, if we don’t actually make the conscious decisions of how we put higher education funding on a long term and sustainable footing, then we risk the very sustainability and the underpinnings of the system in the future. We risk the ability to preserve the scale of access that is afforded by the demand driven system and we risk the opportunity to sustain the equity of access that is afforded by a generous student loan system. 

And these are some of the challenges that we’ve had to work through, and work them through in the context, of course, of overall Budget pressures at a Federal level. As the CEDA Chairman, Paul McClintock, stated in his address to the National Press Club last year: prolonged deficit has the potential to penalise today’s youth and future generations. We could- we could just continue with things as they were, including with Budget deficits. That would lead to a situation where unpaid student debt would keep growing, cost pressures on the Budget would keep growing, and today’s students, who will be tomorrow’s tax payers, will find that they’re paying even more interest on an even greater government debt and facing even more difficult decisions to reign that in in the future.

That’s why our Government has decided we should take the decisions now, that if we take them now can be modest, measured, and careful, to make sure we guarantee long term sustainability, that we can deliver the package of reforms that is fundamentally fair, reasonable, and necessary.

As many of you would know, in the Budget delivered just a couple of weeks ago, we reversed the previous set of higher education reforms. We made it crystal clear that there would be no deregulation of university fees, there would be no $100,000 degrees, there would be no 20 per cent cut to universities. In doing so, we also scaled back the extent to which the Government sought to realise savings in higher education portfolio; scaled back the extent to which we were looking to slow down the rate of growth of costs in the future, given the huge expansion of costs in the past, and took about a $700 million hair cut on the Federal Budget in the way through in terms of scaling down that level of ambition. 

Last week we introduced a Bill into the House of Representatives seeking to secure passage for this new package of reforms, which seeks to share the task of funding higher education access into the future for all future generations, and to do so in a way that does not lock anybody out.

In CEDA’s comprehensive 2017 Economic and Political Overview, one suggested expenditure reduction measure that CEDA proposed was a Higher Education Efficiency Dividend. We agree. Actually, so did the Labor Party, back before the 2013 election, when they introduced a cumulative 3.25 per cent efficiency dividend as part of what, at that time, stood as more than $6 billion worth of higher education savings that they announced between 2011 and 2013, which, of course, they announced at the time to try to deal with the enormous cost pressures that were flowing through as a result of the demand driven system and expansion of access.

Now, for reasons entirely of political expediency, after they lost the 2013 election, they changed their mind and blocked implementation of such measures in the Senate. 

And they say they’ll oppose the same type of efficiency dividend now that they proposed earlier, again presumably purely for political expediency out of a desire to essentially trash the Budget for their own purposes. We can choose to bury our heads in the sand, and they of course can choose to engage in such Budget-wrecking tactics, but the risk is that whomever governs in future will still face the same Budget challenges, the same pressures, and at least – give us credit for one thing – we’ve been very upfront and direct about this. 

We worked our way through the last year’s Budget, releasing a discussion paper that kept in the Budget savings that are greater than the savings that we are now trying to realise, that discussed all of the different types of measures that we are proposing to reign in the current Budget difficulties, and of course went through a very public process in the midst of an election campaign to discuss how that would be achieved.

And what are we asking? We’re asking universities to make a contribution to a 2.5 per cent efficiency dividend purely on the Commonwealth Grants Scheme in 2018 and 2019. This equates to just 2.8 per cent on average of the total base funding for teaching and learning. It doesn’t apply to the research funding that universities receive, and of course it doesn’t apply to all the other external revenue sources, particularly international students or full fee paying students that universities receive income from. Efficiency dividends, as I said, are nothing new. Successive governments have applied them to different parts of the public service in different ways over the years, and of course our political opponents have proposed them in the higher education sector previously as well. 

Now as you would expect, many within the sector have expressed their views on this measure, including some of the VCs here today. And I understand and appreciate that. Nobody likes having to find efficiencies in their organisations, particularly if they’re not getting to realise, in terms of on their bottom line operations, the benefits of those efficiencies. Even organisations that are in receipt of hundreds of millions of dollars of taxpayer funding, who have enjoyed exponential growth in recent years, of course can still quite reasonably find ways that they would prefer to reinvest those efficiencies. But what we’re asking for is that with the economies of scale that have been realised in recent years through the growth in the numbers of university students, with that huge increase in funding that’s occurred that a relatively small portion of it is returned to the Budget to help tax-payers in meeting the Budget challenge.

I know that there are many reasonable voices in the sector, and I do know that absolutely everybody – universities, Governments, everybody here I’m sure – is committed to working to ensure sustainability for future generations and their access to higher education, even if we may have sometimes different perspectives on how to achieve it. The likes of Professor Peter Coaldrake, the Vice-Chancellor of the Queensland University of Technology has acknowledged that in this day and age, almost every industry has been forced to find efficiencies, and that higher education is not exempt. The modest efficiency dividend that we’re proposing will contribute to making tax-payer funding for universities more sustainable for the long-term and it should not significantly impact on universities’ ability to deliver high quality teaching, learning, or research. 

University’s not the only part of this reform package though. We are asking for an across-the-board increase in student fees, student fees which have not seen an increase for over a decade. Again, we’re taking though a very modest approach. We’re asking students to contribute around 1.8 per cent more in their fees next year. They’ll increase by 1.8 per cent for each of the next four years, increasing their share relative to taxpayer funding so that a four-year law degree, fees would increase – and this is the extreme example, and not an average, all the others are essentially lower – fees would increase by no more than $3600 across the life of that four-year law degree. That’s around, if you want to do the maths, about $17 a week for each of those four years’ worth of study. This means that across all degrees on average taxpayers will still contribute more than half – about 54 per cent, in fact – of the cost of a taxpayer-subsidised university course. And on average, of course, that means a university student will be facing having to pay back about 46 per cent of the cost of their course, but only when they’re earning an income and on the basis that they get that entire contribution they pay paid for upfront again by taxpayers and on a deferred loan scheme. 

These changes are very modest, and they’re still fair, and they should not in any way impact on access or ambition, because we can see that over the years from the very introduction of the HECS Scheme through its different incarnations to being the HELP Scheme today, the fee increases that have occurred in that time, that the only direction in terms of participation in higher education has continued to be up. Students have voted with their feet, and said due to increase in the access and the opportunity, and we’ll be there. They recognise that it is good value for money to invest in their education and in their participation. Indeed, in 2012, the UK effectively increased maximum student fees by around 300 per cent, and there was not a jolt of impact that was discernible on participation even from disadvantaged student cohorts. Our changes are not even in the same league in terms of what occurred there and yet we continue to see, as we have for a long time, increased participation across all population cohorts. 

We are also to make sure that that student loan book that I spoke of before is sustainable asking students to start paying back their HELP loan slightly earlier, but also at a much more gradual rate. Those earning a salary of $42,000 will pay back one per cent of their income, which equates to around $8 per week, $8 per week for a graduate to start repaying what is, essentially, the most generous loan that they will ever receive. And this is done to guarantee that that equity of access where no Australian student pays a dollar upfront is locked in, and of course to guarantee that equity of opportunity to be able to pursue a life with a university qualification that still overwhelmingly delivers better employment outcomes and better income outcomes is available to all.

Working alongside John Dawkins when he was reforming higher education and implementing the HECS Scheme in its first incarnation was Professor Bruce Chapman – now one of the global experts speaking about income-contingent loan schemes. And he said of the new arrangements that we’ve proposed that they will not have any discernible effect on university applications or choices about disciplines. Of course, his colleague, Miranda Stewart, the director the ANU’s Tax and Policy Institute, made essentially the same point as Bruce on Q&A on Monday night. 

So those are measures in terms of dealing with the Budget pressures, and we’re being upfront and we’re arguing the case to make sure people appreciate that these measures are about ensuring continued equity and opportunity. But we also want to apply reforms to hopefully make universities more accountable, responsive around student needs, the students they’re enrolling, and public policy priorities. We want to make sure that universities – as I know they strive to do – are genuinely doing everything they can to support students to complete their degree, to demonstrate that the qualifications they receive are responsive to need, and that ultimately those students are hopefully securing opportunities in local labour markets through employment. 

From next year, we propose to commence a process whereby 7.5 per cent of the teaching and learning funding through the Commonwealth Grant Scheme to universities will be contingent on agreed performance metrics. I want to emphasise here, though, any funding that would be withheld from an institution under these performance metrics would be put back into the sector by other means. This is in no way an attempt to create another area of budget savings. It is designed to truly be about inspiring enhanced performance.

We want to start modestly. In 2018, universities will simply be required to participate in the reforms of university admission information and cost of teaching information and research transparency initiatives that we announced. This is work that was already underway, that the universities have already agreed to undertake, and anybody who doesn’t meet that performance benchmark frankly probably isn’t trying. In the following years, though, we want to work cooperatively with institutions to develop key institutional performance metrics to ensure that they’re responsive and adaptive to different circumstances, and accountable for the autonomy that they enjoy – the autonomy to be able to choose, as I say, to enrol as many students as they want in whatever disciplines they want – that there’s actually a feedback loop there for taxpayers, for public policymakers to know that they’re doing so with performance metrics attached. 

Generally speaking, attrition rates across the university sector as a whole have certainly not been ballooning out of control. There’s been a modest rise across all providers at the aggregate level, though, since the introduction of a demand-driven system, and a small group of universities have shown a disproportionate increase in attrition over the last few years at the same time as they have substantially increased enrolments. We should be willing to ask those universities to account for their performance and to take steps to improve the results that they achieve, and to be able to do so without a substantial increase in taxpayer funding, but to be accountable for the utilisation of the record funding that they’re currently receiving. 

I’m pleased that the Regional Universities Network welcomed the opportunities that this measure presents to deliver community objectives and improve student outcomes. The metrics will take time to establish. We want to take it carefully and gradually to make sure we get them right, and that the individual characteristics of each institution are recognised in their construction. For example, here in SA both the Uni of South Australia and Flinders University already have a higher proportion of students from low socioeconomic backgrounds that is larger than the national average. 

So these type of factors need to be taken into account in institution-by-institution performance metrics to make sure they reflect the individual characteristics, and of course the opportunities and circumstances for those students. Every university will have a different starting point, but we ought to consider that opportunity that we give to universities, that they continue to access the demand-driven funding for the majority of their students – indeed, for more of their students – under the rest of our reform. And in return, we’re asking that they be a little more efficient at the margin and more accountable for their performance under this uncapped funding system. 

We’re equally seeking to improve arrangements for students from low socioeconomic backgrounds, to provide greater opportunity for them to participate and succeed through university through enhancement to the Higher Education Participation and Partnerships Program, or HEPPP. HEPPP has been much talked about recently, as the sector was concerned that because it doesn’t have legislated funding certainty it could be the victim of budget savings – and that’s a legitimate concern if budget savings had not been identified to be realised elsewhere. We’ve said, though, in these reforms that to remove that concern we want to enshrine the program and the more than half a billion dollars linked to it in legislation, and I hope the Parliament will support us in that goal, with essentially a needs-based loading, not unlike those that we’re applying under the Gonski reforms in the school sector, applying to students in the university sector to help ensure participation and success.

We’re also expanding, as I’ve alluded to, the demand-driven system to include approved sub-bachelor courses at universities, allowing students and universities to better choose the courses that suit them, to be undertaken or to be offered, to improve retention and completion rates, to give greater pathways of one or two year study opportunities rather than being locked into a three or four year opportunity. We’re creating opportunities for work experience units to be part of a course of study, and for that to be funded as part of that course of study for the first time. We’re creating opportunities as well for enhanced student choice in relation to postgraduate places so that, just as students are free across the demand-driven system in sub-bachelor and undergraduate places, the students who are most capable will be able to also take the scholarship to any university of their choice across the postgraduate environment. 

And regional students will benefit from increased access to higher education through the funding for up to eight community-owned regional study hubs. Hubs like this have been talked about right across the country, including here in South Australia where the mayors of the Upper Spencer Gulf region have met with me on a number of occasions, talking about the transformative benefits that a regional study hub could bring to regional South Australia, including potentially in their communities. 

We’re driving accountability and transparency through implementations of admissions reform to address the complexity of the admissions processes and the availability of clear information about admissions pathways. The push for greater transparency in higher education is also taking effect in the sector’s quality assurance and regulatory agency. TEQSA has been consulting on changes to the publication of its regulatory decisions to allow the timely sharing of information. This is all about giving students greater information, greater confidence, career advice as teachers, parents, greater information and greater confidence about the pathways to choose, as well as protecting the reputation of Australia’s thriving higher education sector, to ensure that whether they are domestic students or international students they can have absolute confidence in the quality of the education they receive in Australia.

And although today is focussed on higher education, I want to also emphasise that we are focussed very much on building on our reforms to fix problems in vocational education. At the end of last year we implemented reforms that got rid of the failed VET FEE-HELP scheme that had seen such wastage and carnage across the vocational education landscape, and have replaced it with a far better structured and targeted vocational student loans program.

For too long, too many people have, perhaps at schools and elsewhere, been encouraged to view university as the only option for post-school education. It’s not. And of course, we should be making sure that there’s a strong appreciation at schools for people contemplating their future career choices of the opportunities in the vocational landscape. That’s why we’ve launched a new $1.5 billion Skilling Australian Fund, to create an extra 300,000 apprenticeships, as well as an industry specialist mentoring program to support apprentices and trainees in industries undergoing structural changes, including the auto sector here in South Australia. They join other programs, like our P-TECH pilot programs in schools, the Naval Technical College that’s proposed Adelaide as part of our defence industry investment, of which our universities I know are eager to also be partners, and our 1200 scholarships program for South Australia. 

We’re serious about getting the balance right in tertiary education, and we’ll undertake further work, research, and analysis in terms of the overall integration of the tertiary education landscape, rather than just looking at the in silos of higher education and vocational education. We recognise the importance of strong publically-funded research as well. Over the next four years, my portfolio alone will invest around $12 billion in research funding for universities across the health portfolio, defence portfolio, environment portfolio. Many other agencies of government equally pursue a number of different research investments and opportunities, many of which partner with our universities.

Our response to the National Innovation and Science Agenda identified the priorities and incorporated the priorities of Philip Clark’s Research Infrastructure Review, and put additional money behind incentivising greater collaboration and commercialisation of Australian research – an area in which we’ve lagged as a country. The Clark-Bradley report on university infrastructure pointed to universities being able to leverage their balance sheets more effectively to take advantage of current lower interest rate environment. But nonetheless we have been increasing our R&D investment and bringing into range a number of initiatives to give the sector scope and flexibility, including the streamlining of research block grants, encouraging greater industry engagement and participation, and securing long-term operational funding of $150 million per annum, fully indexed, to support the National Collaborative Research Infrastructure Strategy.

Overall, the economics and equity equations of education is something that I – as you would expect me to as Minister – take very seriously. Education is not just a worthwhile investment, it’s a critical investment for individuals, for our nation. But we must also ensure that at every step it is a value for money investment that is fair to taxpayers, including the majority of whom, even with the expansion of access we’ve undertaken, do not go to university. 

We’ve been working closely and consultatively with the sector ever since my appointment, but particularly since we released our discussion paper before the last election in last year’s budget, to work on ways that can see us realise and address the challenges we have, realise the opportunities that are before us, and come together to deliver certainty for higher education, certainty for students in the equity of access, certainty to our economy that we’ll have the skills needs that we require. 

We can’t continue to kick the can down the road in terms of addressing challenges, or to expect the sector to live with ever-present uncertainty. The opportunity is here now to get these issues resolved, and over the remaining months of this year I hope and trust that we’ll get that support and that cooperation, to work through the Parliament, to hopefully work with the sector to find a way to deliver sustainability, certainty, and the opportunity for long-term excellence at every level.

Thanks so much for being here today, and I look forward to the panel discussion after lunch.